State of Cannabis Accounting and Tax

Cannabis Accounting and Tax Updates: What You Need to Know in 2025

Navigating the evolving world of cannabis finance requires staying ahead of the curve. That’s why understanding the latest Cannabis Accounting and Tax Updates is critical for professionals serving clients in this highly regulated industry. With shifting state laws and federal restrictions still in place, cannabis accountants face a complex—and often contradictory—landscape that demands specialized knowledge and ongoing education.

In this blog, we break down key updates, highlight tax and accounting challenges across jurisdictions, and help you understand what’s changing, what’s staying the same, and how to stay compliant while delivering top-tier service to your clients.

The Federal vs. State Conflict in Cannabis Accounting

Under federal law, cannabis is still classified as a Schedule I controlled substance, making its possession and use illegal at the national level. However, individual states maintain the authority to legalize cannabis for medical and/or recreational purposes within their borders. This contradiction is the foundation for many of the challenges covered in today’s Cannabis Accounting and Tax Updates.

As of 2025, over 35 states have legalized cannabis in some form. Yet, due to cannabis’s federal classification, IRC 280E prohibits businesses from deducting ordinary business expenses—drastically inflating taxable income and shrinking profit margins.

What Is IRC Conformity—and Why Does It Matter?

IRC conformity refers to the extent to which a state adopts the federal Internal Revenue Code. States that conform to IRC 280E follow the same disallowance of deductions, while others decouple or apply modified versions of the rule. For cannabis accountants, this presents a unique challenge when preparing multistate tax filings.

In our latest Cannabis Accounting and Tax Updates, we’ve identified several states—such as Colorado and Oregon—that provide relief by allowing some deductions at the state level, even while denying them federally. Knowing where your clients operate and how their state handles conformity is essential to offering accurate tax guidance.

State and Local Cannabis Tax Rates: A Moving Target

Another layer of complexity in cannabis accounting is the vast difference in tax rates across states—and even localities. Some states impose excise taxes at the point of cultivation, others at the retail level. Local jurisdictions may add their own cannabis-specific tax layers.

For example:

• California applies both a state excise tax and local city taxes that can total 30% or more.

• Illinois imposes a potency-based excise tax on recreational cannabis products.

• Michigan charges a flat 10% excise tax but allows municipalities to apply additional fees.

Our in-depth Cannabis Accounting and Tax Updates reveal the latest adjustments in tax rates and rules across these states and more. Staying informed is key to ensuring clients are not overpaying—or underreporting—tax liabilities.

What Is Cumulative Taxation—and Why Should Cannabis Operators Care?

Cumulative taxation refers to the stacked burden of taxes applied at different points along the cannabis supply chain—cultivation, processing, distribution, and retail. Unlike most other industries, where taxes are typically applied at the end-user stage, cannabis businesses may face multiple tax events before the product ever reaches a consumer.

This is one of the most misunderstood aspects of cannabis taxation. Recent Cannabis Accounting and Tax Updates emphasize how these layers of tax can quietly erode profitability if not carefully managed. Accountants must advise clients not only on compliance but also on tax strategy and business structure to legally minimize cumulative tax impact.

Staying Compliant Amid Constant Change

One of the biggest takeaways from this year’s Cannabis Accounting and Tax Updates is the speed at which regulations are evolving. States are updating licensing models, revising excise tax thresholds, and shifting reporting requirements on a near-quarterly basis.

For accounting professionals, this underscores the importance of continual professional development and active engagement with cannabis tax policy. Working with a qualified cannabis accountant or joining a professional network like NACAT Pros can provide the latest tools, templates, and guidance to serve clients effectively.

In conclusion, Cannabis Accounting and Tax Updates are more than just technical details—they are strategic insights that can make or break a cannabis business’s bottom line. Whether you’re an accountant, bookkeeper, or financial advisor, mastering these updates ensures your clients stay compliant and competitive in a growing yet regulated space.

As we move forward in 2025, expect even more legislative and regulatory shifts. Be proactive, stay educated, and connect with industry peers who specialize in cannabis accounting.

This Training Qualifies for CPE Credits

LEARNING OBJECTIVES: Understanding the federal, state, and local taxation of Cannabis in the United States

INSTRUCTIONAL DELIVERY METHOD: Group Internet Based

RECOMMENDED CPE CREDIT: 1 hour

FIELD OF STUDY: Specialized Knowledge

PROGRAM LEVEL: Basic

ADVANCED PREPARATION: None

PREREQUISITES: Accounting professional (CPA not required)

FEE: None*

Green Leaf CFO, LLC is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its web site: www.nasbaregistry.org

*For more information regarding administrative policies, refund information, or any other feedback, please contact us at naomi@greenleafcfo.com.

Presented by:

Naomi Granger, CPA, MBA

A former “Big 4” accounting professional, Naomi has over 15 years of experience in both public accounting and industry accounting. Over 4 years ago, Naomi decided to try her hat at entrepreneurship and has never looked back. Naomi recognized a void in the cannabis industry and founded Green Leaf CFO in order to bring proper bookkeeping, accounting and tax practices to cannabis businesses.

Green Leaf CFO provides educational tools for accountants and financial professionals to enter into the cannabis industry for untapped professional potential. Our mission is to help accountants fall back in love with accounting again, by changing the current state of the accounting industry from being high-stress, highly competitive; to a collaborative, value producing assets to our client’s businesses.

Naomi has been featured in the Wall Street Journal, Forbes, Cheddar TV, on the cover of the Las Vegas Sun, on the cover of MJ Biz’s Jan 2019 issue in their “Women to Watch” feature as well as many other publications.